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School of Business | Department of Information and Service Economy | Logistics | 2013
Thesis number: 13405
Capacity management and production allocation in the pulp & paper industry: Decision-making drivers and process in multiple production Site Environment
Author: Talvitie, Mika
Title: Capacity management and production allocation in the pulp & paper industry: Decision-making drivers and process in multiple production Site Environment
Year: 2013  Language: eng
Department: Department of Information and Service Economy
Academic subject: Logistics
Index terms: logistiikka; logistics; toimitusketju; supply chain; tuotanto; production; suunnittelu; planning
Pages: 100
Key terms: Supply chain; Production Capacity; Production Planning; Production Allocation
The focus of this study is three-fold: 1) to define appropriate way to calculate available capacity potential of 11 production lines, 2) to define the key decision-making criteria for allocating products to lines and 3) to design a process for the future production allocation decision-making. The objectives were reached through a literature survey that provided good cross-industry guidance on capacity definitions and measurement as well as prior research on production planning and production allocation decision-making.

In this study, it is proposed that available capacity potential of board production lines is calculated through unavoidable time and material losses as well as production speed levels. Unfortunately all the desired data was not and could not be made available for the purpose of a complete review, but sufficiently accurate results were reached and proper description of the methodology could be created. The results were applied in the case company's 2014 production planning in autumn of 2013 with good applicability and feedback from the field.

Based on the defined available capacity potential of each production line, it is possible to evaluate how much production can be allocated to each line. The key drivers that should be taken into account in evaluating the financial impact of production allocations decision were identified. The conclusion is that besides the obvious direct variable manufacturing costs and transportation costs, also the indirect impacts through the production units' energy and pulp balance should be taken into account. The annual impact on the energy balance can be evaluated through the change in the production volume, taking into account that the seasonal variation in the water temperature has a significant impact on the production units' energy self-sufficiency. Changes in the production volumes were also identified to have an impact on the unit's pulp balance, which can also reflect back to the energy balance.

Next the way cost components should be analysed in connection with production allocation was evaluated. The conclusion was to use three-month time span for the variable and transportation costs to retain responsiveness, excluding energy where a 12-month comparison period is required due to climate seasonality. In case of opportunities to adjust fixed costs, 12-month comparison should be used in order to capture seasonal payments.

The decision-making process for production allocations is defined at the end of the study. It starts from the sales plan and takes input from inter-changeability library. The non-inter-changeable volumes are allocated first, followed by the inter-changeable volumes based on the optimised profitability. In cases of lack of available capacity to cover the forecast demand, the model returns to evaluate the least profitable inter-changeable and non-inter-changeable products against each other to finalise the product portfolio.
Master's theses are stored at Learning Centre in Otaniemi.